Wed Nov 29 07:00:00 CST 2017

Consensus Actual Previous
Month over Month 0.3% 0.3% 0.0%
Year over Year 1.8% 1.8% 1.6%

Inflation provisionally accelerated again in November. A 0.3 percent monthly increase in consumer prices was in line with expectations and large enough to lift the annual inflation rate by 0.2 percentage points to 1.8 percent, equalling its highest mark since April.

The flash HICP followed suit, also posting a 0.3 percent increase versus October for a yearly rate of 1.8 percent too, up from 1.5 percent last time.

Much of the increase in annual CPI inflation was attributable to energy where the rate climbed from 1.2 percent to 3.7 percent. However, elsewhere there were some signs of higher underlying prices too. Hence, service sector inflation was up 0.3 percentage points at 1.5 percent while goods recorded a 0.2 percentage point gain to 2.1 percent and rent, ex-utilities a 0.1 percentage point increase to 1.7 percent. Only food (3.2 percent after 4.3 percent) showed a decline.

The flash Eurozone HICP data for November are due tomorrow. Today's German report is consistent with a rebound in the headline yearly rate following the October dip. More importantly, there may be a small increase in the core rates too.

The consumer price index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI provide widely used measures of inflation. A provisional estimate, with limited detail, is released about two weeks before the final data are reported.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Germany where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. As a member of the European Monetary Union, Germany's interest rates are set by the European Central Bank.

Germany like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). The HICP is calculated to give a comparable inflation measure for the EMU. Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The preliminary release is based on key state numbers which are released prior to the national estimate. The states include North Rhine-Westphalia, Baden-Württemberg, Saxony, Hesse, Bavaria and Brandenburg. The release date is not announced in advance but the preliminary estimate of the CPI follows in the same day after the last of state releases. The data are revised about two weeks after preliminary release.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.